S&P Reinsurance Report Warns of ‘Negative Rating Actions’

Standard & Poor’s latest report – “Past The Tipping Point: Competition And Soft Pricing Could Lead To Rating Pressure For Global Reinsurers” – on the state of the global reinsurance sector, notes that “reinsurers are experiencing increased competition and curtailed profitability, which could result in downgrades in 2014-2015.” S&P pointed out that this marks the first time since 2006 that it is forecasting “more negative rating actions in the sector than positive ones.”

Credit analyst Dennis Sugrue said: “The oversupply of reinsurance, in tandem with reduced demand for it, is reshaping the marketplace. As we enter 2014, the changing marketplace is manifesting itself in stunted profitability.

“We think that companies without a defendable competitive position or those who are more aggressive in maintaining market share by competing on price or relaxing their underwriting discipline, are most at risk. If we observe that a reinsurer’s product mix or risk profile indicates unfavorable competitive undercurrents, relative to other global reinsurers, we could revise our assessment of its business risk profile to reflect the relatively higher risk.”

S&P also forecasts “a deterioration in the sector’s operating performance in 2014 compared with recent years, especially 2012 and 2013,” which it said “seems unavoidable when you consider our assumption that rising interest rates will not benefit reinsurers’ results until 2015.

“The amount of rate decreases that we have seen in the sector already this year further underpins our view. While we expect the majority of reinsurers to continue to generate acceptable returns, the risk of some reinsurers materially underperforming is elevated.
We believe that nearly half of our rated global reinsurers are significantly exposed to these competition and pricing pressures.”